Watching for economic effects of the foiled terror plot

WASHINGTON -- Failure of the plot to blow up U.S.-bound planes saved the weakening economy from a major jolt. Now economists are keeping close tabs on consumers and businesses for lingering fears.

People and companies already had been tightening their belts, pressed by lofty energy prices, a loss of altitude in the once high-flying housing market and the toll of two years of interest rate increases. All those slowed the economy this spring.

If people were to become gripped by fresh worries about terrorism, they might curb their spending even more, further weakening the economy.

At the moment, consumers and businesses alike appear to be taking the terror plot news in stride.

Yet, the foiled plot is likely to come up over and over in debates among politicians this election season -- reminding voters of national security concerns and vulnerabilities.

"It will have a megaphone effect and not its usual shelf life," predicted Terry Connelly, dean of the Ageno School of Business at Golden Gate University in San Francisco. The potential for such incessant "yackety-yak" as Connelly calls it, could end up spooking consumers and businesses.

It's the behavior of businesses that Connelly is especially concerned about.

Economists have been counting on companies to spend and invest at a solid pace through the rest of the year -- helping to cushion the economy from the negative effects of a slowdown in consumer spending.

In the April-to-June quarter, however, businesses cut spending on equipment and software for the first time in three years.

"With uncertainties about the economy's direction, the outcome of the elections, bloodshed in the Middle East, this -- terrorism fears -- can be just one more reason to delay or hold back investment decisions," Connelly said.

The terror plot could threaten the U.S. airline industry's fledgling recovery, some analysts said.

The industry, which was dealt a terrible blow by the 2001 terror attacks on New York and Washington, was beginning to see improvement. Airlines were coming off a solid second quarter, in which some carriers posted profits for the first time in years.

Worries about safety could bring cancellations. New restrictions for carry-on luggage -- banning liquids and gels such as shampoo, toothpaste and water -- could deter some from flying.